With investors such as Fidelity writing down the value of their holdings in Cloudera and Dropbox, the chair of the SEC has voiced concern that excessive valuations may be harmful to investors and portfolio companies alike.
Tactics intended to boost near-term valuation (over creating long-term sustainability) and the complexity of numerous share classes were amongst the focus areas, with calls for more meaningful corporate governance as a result.
Ms White expressed worries that start-ups might bend rules on financial disclosures or corporate governance as they strive to reach that milestone. “The concern is whether the prestige associated with reaching a sky-high valuation fast drives companies to try to appear more valuable than they actually are,” she said. “Whether the source of the obligation is the federal securities laws or the fiduciary duty that is owed to shareholders, the resulting candour and fair dealing should be fundamentally the same.”